Making Money in Real Estate

You’ve asked for more real estate posts, and here it is. Rachelle makes a living in investment real estate and will share with you some trade secrets.

It is possible to make lots of money in real estate, but it can be difficult to get basic information. American information is abundant but much of it does not apply to Canada.

There are people who have outperformed the market time and time again. In many cases they’re not really sure how they’ve done it themselves.

Here is a list of 6 different strategies that you can apply to make money in real estate. You can apply a strategy to any real estate purchase you make and it will serve you well. Combining approaches will increase your chance of success.

1. Area Appreciation

Area appreciation is when you buy a piece of real estate in an area or neighborhood that outperforms the rest of the city. Implementing this strategy requires inferring which area is going to be the next hot place to buy.

Since I have been in Toronto I have seen many areas rise exponentially in value. I remember driving along Dundas St West a decade ago, almost every storefront was abandoned and the prices reflected that. During that time trying to sell a building would have been very difficult. A drive along that strip 10 years later and there is no vacancy, tons of franchises and established local businesses and the entire area has probably doubled in value.

Another example of that same phenomenon happening is Oshawa. A short commute from Toronto, you can buy a 3 bedroom bungalow from $100,000 and 3 bedroom townhouse for even less. In my opinion this is one area that will see very high appreciation. Buying in areas adjacent to a major city is an excellent strategy that provides higher returns.

2. Buying Opportunities

This scheme involves taking advantage of unfortunate circumstances happening to the seller of a property. Real estate is not very liquid. A desperate seller may have to reduce their price.

Homeowners may just want to dispose of a house. Why? Financial problems, divorce, out of town transfer, estate sales and illness can all present motivations to sell as quickly as possible. What used to be a treasured asset becomes a burden.

Patience is the key if you are looking for this type of deal. Spread the word far and wide that you are a buyer. You must be ready to buy and close quickly. A significant discount is available for these savvy buyers.

3. Adding Value

This method of real estate investing involves buying a property that is run down and fixing it up. This is easiest for the person who is handy or in the trades but if an opportunity presents itself, you can hire a contractor. Dirt, disgusting smells, bad paint choices are all easy fixes and money in your pocket. You pay dearly for polish, cleanliness and staging.

For intermediate projects you can install new kitchens, baths, flooring and more.

Then there are advanced level projects like houses with structural, mold, electrical, heat or water issues. At times you can find a property that is in the midst of a major renovation that has been interrupted.

Making money by adding value is not for the faint of heart. Anyone who has ever done renovations will tell you that once the walls are opened up there are likely to be expensive surprises. For the right person this can be a gold mine.

4. Time

This way of making money in real estate is so simple anyone can do it. Buy a house and wait. Real estate can be a hedge against inflation.

Buy a house and stay there for 50 years. As inflation affects the price of your house and your house stays at the same intrinsic value. The buying power of a dollar goes down continually so in the future you will get many more dollars than it cost you to buy the house. The elderly lady down the street paid $30,000 for her house in 1952 and now it’s worth $300,000, much of that increase is just due to time eroding the value of a dollar.

You benefit from the compounding effect of inflation on the dollar value of the house.

5. Cash buying

This method involves having a lot of liquid cash on hand. The pool of buyers able and willing to buy a property outright is small. Cash is king and you can get great deals just because there is no competition for the property.

Unfortunately the reason banks won’t lend is because of significant problems. You will have to address these problems to profit.

Some of the reasons the banks will not lend are vacancy, no well, no electricity, no septic and no insurance.

There is a condominium in Toronto that has been unable to insure the building. You can buy a unit there at an amazing price. In the future when they become insurable again your unit would triple in value.

An important point about this strategy is that when the obstacle to financing is removed the property can be appraised and you can get your capital out. An exit plan is vital otherwise all your money will be stuck in a substandard, illiquid investment.

This route is risky but success brings unbelievable profits.

6. Other Opportunities

This usually applies to more advanced buyers but you can find houses with large lots that can be divided, small houses that are double brick (put another floor on it), buildings can be converted to condominiums, and farmland to sever into lots. The permutations are almost endless and can net you a nest egg in the bargain.

Real estate can be a road to riches for the buyer with insight and vision. I urge you to think out of the box and search for opportunities that less informed buyers have overlooked.

In my experience it is difficult or impossible to convince others that you’re not insane when you see promise in a much abused unloved project so be prepared to go it alone psychologically. After all if everyone wanted these properties they wouldn’t be a good deal.

About the Author: Rachelle specializes in renting property on behalf of landlords. She also works with investors to find good investments in Toronto and surrounding areas. Her passion is bringing multi res properties back from the brink and maximizing profitability.

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I woudnt bet the bank on RE at this time, its overpriced and there is way too much leverage just to make a few bucks, even a slight pullback can put you in negative equity..it takes tens of thousands just to off load it. And past performance doesnt dictate future performance, and thats basically what this post was written on. Just because RE has increased drastically in the last 6 years it doesnt mean it will continue. infact smart money is now pulling out of it. At one point every asset class becomes over valued, and RE has reached its peak. Low rates are the only thing keeping this thing from tilting over, when that party ends it will drop like sack of potatoes. Beware.

I base my assessment of Oshawa as an area that will see greater than usual appreciation on several factors.

First it is surrounded on all sides by areas that are significantly higher in value.

Second if you pick the downtown core as your default commuting location it is equidistant to Burlington. The cheapest house listed on the MLS in Burlington is a condo townhouse for $199,999. This is $70,000 more than the cheapest listed house in Oshawa.

About 1/5th of the jobs in Oshawa are related to manufacturing. Part of that number are other employers such as OPG it is not all GM.

Third I see the area building up, there is a lot of building of stores and malls. The people in charge of picking locations for these stores don’t pick them out of hat. They use complex projections to determine growth based on population and demographics. I’m not sure you can go wrong picking your real estate by following construction of malls and big box stores.

Further to Rachelle’s point about opportunities in Oshawa, the city of Oshawa has a university, large community college, major hospital, regional cancer centre and the new provincial courts that are almost (if not already) completed. It is on the GO Lakeshore east route, and very close to Darlington which is a major employer because of the power plant there.

Yes Oshawa and it’s surrounding areas are booming in development, business and residential. It’s not the GM town it once used to be. Although I don’t know where in Oshawa you can get a 3 bedroom bungalow for $100,000…???
The average price of a home here is at least $200,000.

The condo building is this one right here, about 7 years ago I used to manage a unit there. It was pretty horrible at the time. Some time after that I heard they had the insurance problems and the units are now worth about half of what they were. It was a pretty horrible place. Here is the MLS link.

I knew a guy who had three of these and was renting rooms to students from the college down the street. He was making a killing when the condo board decided not to allow renting rooms. Still I doubt you could build a townhouse for this price.

There was another building at Kennedy and Eglinton with problems I spotted a couple years ago. Walk 5 minutes to The subway so a good rental location. At the time they were selling for about $70,000 and here they are now.

If you are interested in making money in real estate, but are debt averse, is it still possible to pursue it? Being in a situation with bills to pay and my own mortgage, I am not keen on having a second mortgage (even with a large enough DP), to invest in real estate. I am, however, interested in it. Is there good sharing opportunities where multiple people (say 10) would invest in a property using collective of cash? Are these even recommended? Would it be easier to simply buy a REIT?

Oshawa should see a lot coming it’s way. The University (UOIT) is on a constant expansion. It is not only building more in the north end, but is buying up buildings in the downtown city core as well.

The Darrlington Power Plant (OPG) is slated to built 2 more nuclear reactors. The job is currently on hold, but inevitably it will happen.

Also GM Oshawa may have lost the truck manufacturing but they are suppose to be getting a Cadillac car in the near further. So things are looking up there too.

One question tho, the condo building you were talking about Rachelle with the low prices. Would that be the one the was/partically still is a hotel and is connected to the underground PATH network? I haven’t check recently but it had about 10-15 listings for very cheap on MLS.

Nice article; and you do bring out couple of interesting points vs. real estate bulls who simply push real estate. I have been a RE investor myself and biggest challenge is managing it. Most people don’t consider the property manager costs when working with numbers. Just because someone decide to manage property themselves and not to include his/her pay in bottom figure, does not make it any better investment.

Currently RE is fairly valued, if not over valued. Its always a good idea to buy investment which is undervalued. If RE prices do start moving downwards, the marginal ones (like far off, uninsurable, beatup) will suffer most. And I can’t stress enough that its a very illiquid asset.

O.H.: It is much easier and simpler to buy a REIT, which is my preferred method. You do lose the ability to create value out of your own labour (of course, you also don’t have to commit your own time/labour), and you trade off the granular risk of a big repair or a scummy tenant taking you to the brink for the background risk of accounting scandals, government regulatory insanity, and the whims of the capital markets…

Great article- really informative! Willfly: you bring out a great point as well. There are many additional costs that go into owning and managing a real estate investment especially during hard times when you may not have enough leasers. I also agree that although right now, economically people may not be able to buy real estate but for those who can in the next couple of years will come up big when the market gets back on top!

All real estate in Canada is way overpriced and the perfect storm is about to come crashing down. Not in half like the US, but you can bet 15-30% easily and it will drain out year after year for the next 5 years once HST and rate hikes come into effect. I am invested in RE and wouldn’t buy anything even if you gave me the cash to do so.

For the RE bears out there I have this to say. If you buy properly you can buy in any market. I think the Toronto Real Estate market is due for a correction because of the affordability gap between the average salary and the average house price in Toronto.

Even multi res is overblown right now because bank rates are so low. However there are still very attractive properties for sale right downtown for those who care to look.

Even a few weeks ago I showed a property I really liked to quite a few investors none of whom actually bit.

The property in question was a mixed use property on Dundas Street West about two blocks from a major expansion of the shopping mall. The block it was on was pretty abandoned looking but the rest was very acceptable. It was across from a Loblaws.

This property was owner managed. Then he died…. and thats when things really got bad. The building took several months to go into receivership and has been in receivership for about 6 months. The listed price was $1,700,000. The vacancy rate is about 50%.

No one has been trying to rent out this empty space for months so vacancy is just accumulating. There is absolutely nothing wrong with the space in fact the interior apartments are like little condos, every unit is separately metered. The commercial spaces that are vacant are in pretty good shape. It’s a good solid building and it’s totally updated for fire code etc.

The last I heard the receiver had turned down offers of 1,200,000. This is basically the price you would pay for the rented space but you get all the bonus empty apartments for free.

The building could use some curb appeal that’s for sure but for those of you in Toronto grants of up to 50% or $10,000 are available for facade improvements.

My plan for this building would be to buy it, rent it out, wait a while then refinance at the higher value (income properties are evaluated according to cash generation) get my capital out and just enjoy my free building.

There is a $60,000 annual income upside on this building and that’s why I like it.

Notice you can also buy a multi-million dollar home but I’m not recommending that.

I hate one particular real estate show where the agent shows three houses and expects the buyers to just trust her and buy one. I do more evaluation on what blender I want than these people do on the most important purchase of their lives.

Many people just sit at home and complain about the crazy prices and don’t bother to look for the needle in the haystack.

Every single factor that will affect the real estate sector will seriously impact the share prices of REIT’s I’m not sure how people simultaneously say real estate is overpriced and go buy a REIT. The kind of real estate they generally invest in has an intrinsic value calculated according to it’s income generating power. But as we all know share prices don’t always care about intrinsic value. If we start hearing about the residential single family’s home’s decline in value people will be selling off any stock with Real Estate in the name. No one will care that your REIT is in Winnipeg and the Vancouver market is the one tanking. So if you’re so bearish on real estate that you won’t buy a property, don’t buy a REIT either.

Oshawa was mentioned a couple times as a hot spot in the Canadian real estate mag and is a in the top 5 of REIN.

I highly doubt that we will have a declining market- maybe steady, but no minus 20% (exeption dying cities). I keep buying, always the same conservative formula when doing my DD and always for good positive cash flow.

I comes down how you invest. Flipping a house? Too risky. Too buy and hold? Of course. It is not a quick rich scheme, but a long time goal.

CMHC (and therefore the banks too) is asking in 4 weeks for 20% down for investment properties. Commercial are mostly 35% down already. First buyers will have to proof that a higher interest rate won’t kill them.

This makes me quite positive that our market is healthy (well, maybe the condo market in Toronto not, or Vancouver now after the games). And even a set back for a few years is okay aslong as there is a positive cash flow.

I ll continue my boring running numbers, putting offers out and being happy if some of them get accepted.

Oshawa does have excellent value. I do own a rental property there and grew up in that area, so I may be biased.

I would like to point out that Oshawa does have some great areas BUT they have some “less desirable” areas as well. For the prices that the OP mentions, you MAY be able to find something like this in a less desirable area and the house will need a lot of work. Believe me, you do not want to live or buy in these areas.. take a look at the people first then you can judge.

One thing I do have to mention, is that the property taxes are really bad in Oshawa. It’s the highest in all of Ontario. 1.7 % of your assessed value goes to property taxes. That’s almost 1% higher than Toronto’s property taxes. This is because Oshawa is upgrading their tired infrastructure and preparing for accelerated growth. Oshawa wants to clean up its downtown to attract more businesses as they have lower business property taxes. This is also factored in the high cost.

Great post!! Thank you for taking the time to delineate some of the advantages to this exciting and profitable opportunity. Looking forward to expanding my real estate portfolio as my dreams become reality. Looking forward to your next post. Thanks again Rachelle. Insightful. Were can I follow your own blog?

Oshawa is a fine place to raise a family, like many cities and towns in Ontario. But there are a lot of very sketchy areas, the commute into Toronto proper can be an absolute bottleneck on the 401, public transit is not up to par, houses are cookie-cutter – especially the newer subdivisions, and you have to drive at least 10 minutes to the nearest ‘convenience’ store. As for hiking and trails, Oshawa reminded me of edmonton without the charm.Rachelle says there’s lots of reasons to look to invest in oshawa but I can’t help but feel it’s a dying older city and the auto industry in canada’s death spire will continue.

If you want to move to Ontario from victoria, consider Ottawa. I live in Toronto, and couldn’t imagine tacking on a 2 hour commute to my already long work day toget out to oshawa. Plus, like another poster said, the days of a 100K house in a good part of the ‘schwaaa’ are over.

Good post, and no doubt there is money to be made in RE. However, like any investment success story, you need to have knowledge; be able to apply it, be on top of your investment, and have a little bit of luck and timing on your side. We know, we used to own and rent a condo :) I agree with most other posts, there are many additional costs that go into owning and managing a real estate investment; it’s easy when the market is good, ride it while you can, inflation is coming.

I imagine you would need some serious money in hand to finance a property worth $1.7M. Also i guess, there is another 100Kish on top to fix this property up and get it rented out? In these kind of deals would it make sense to get a couple of investors together? Does this happen?

I just want to point out that although Oshawa was one location mentioned in my post…. there are others. What I’m suggesting is looking for these opportunities. Look for anomalies. Search the MLS and look for out of place prices. It’s not Oshawa, it’s the overlooked and ignored, waiting to be discovered next find. I love finding deals. They are out there.

Don’t worry I will post some more. With such a fine audience how can I resist :) If you have any questions or don’t understand something about real estate and would like me to expand on an area let me know.

First:
“My plan for this building would be to buy it, rent it out, wait a while then refinance at the higher value (income properties are evaluated according to cash generation) get my capital out and just enjoy my free building. ”
– This is new to me, could you please elaborate with a simple example?

Second:
I notice ‘maintenance fees’ generally go up, even when markets and prices go down! Is there any way to for unit owners to collaborate to do, say, a one-off charge, and reduce these fees?

“The Mar distribution will be payable on April XX, 2010 to Unitholders of record on Mar 31, 2010.”

Does it mean I can buy the reit just on Mar 31st and sell it the next day and still get the distribution?

I understand there will be fees for buying/selling like any other stock. but does this strategy make sense if you just want guaranteed dividends and not care about capital appreciation (or risk capital depreciation?).

I am trying really hard to think of a simple answer but this is a whole other post. First I have to tell you the different methods of evaluating the income property. It’s not at all like buying a house you live in.

An investment property is worth the net income it makes. If a building were 100% vacant you wouldn’t be able to get a loan on it or it would be extremely difficult. The bank lends on the income alone. If you had two identical buildings side by side and one had $100,000 more net income it would be worth a lot more.

A very gross calculation I have used is $100 in increased monthly rent = $10,000 in increased price for the building.

As for your condo fees always going up…..it’s pretty simple why. First of all property managers are paid a percentage of the operating budget… if they saved you money they would get a pay cut. Plus it’s a rare board that can stop squabbling long enough to hold the property manager’s feet to the fire and tell them to get better prices. A condo manager has a number of companies they can call on for quotes for a job and they keep them. Board members are volunteers and 99% of them have no idea how to run a building. It’s like a blind man at the steering wheel.

I wrote about this over here in this thread at Canadian Money Forum. I can tell you this… I hate condos as investments because of exactly this issue.

The mechanism you describe is known as a special assessment or special levy and it’s really bad news for market prices. Some unit owners will be unable to pay and have to put their condo on the market. It really bothers me that condo’s are marketed to seniors some of which are on a fixed income and cannot afford to pay this kind of extra expense.

You would need about $500,000 to put down for this building including closing costs. Generally a numbered company owns the building. Plus personal guarantees will be required from the owners. One of the things I really liked about this building is that no real work had to be done. With a numbered company several people can own the shares. As someone who rents for a living I can assure you that all the vacant spaces are very rentable. The commercial units have the highest vacancy but they are small spaces and pretty easy to rent. My estimate of how long it would take to rent all of it is 6 months max.

There’s no way I would pay 1.7 either. I think you could buy it for 1.2 to 1.4. Last I heard they will sign back anything over a $1 million. Keep in mind that I heard this from a real estate agent so no idea if this is the 100% truth or not. I have no substantive information on the quality of the other offers. Closing time, vendor take back requirements etc.

I really enjoyed this article for several reasons, I am very interested in investing in Real Estate but also buying my own for live in property. I recently purchased a condo in Brantford for about 165k condo townhome and so it is pretty much self-sufficient to rent to students close to the universities and pretty spacious.

I am always looking for the next place that I can invest in and I must say that it is quite difficult. I was considering a few condos that I saw on the lakeshore new builds Park Lake and NXT, i liked the latter but I am also concerned about the condos fees eating into my profit.

Rachelle, I noticed that the building you mentioned had high condo fees, do these include the property taxes because I know there were older buildings that everything was included and so although it appreas higher actually pretty reasonable.

I think that as mentioned earlier my hesitation for Oshawa is the high property taxes, I think that any way to reduce the unrecoverable costs I am all for.

Finally my life is downtown, so I am looking to live close to downtown but in a house I love the yonge and eglinton area but out of my price range can you recommend any areas that have the old charm but with an excellent price? I am willing to wait a few years for an area to turn around once its not crack house ridden like Sherbourne where Tridel has built St. James Mansion. I do hope that mentioning names is not taboo.

Thanks, I find the feedback amazing and I am glad that I stumbling on this website- I was looking for a better credit card …

It’s really hard to give you an answer to that without knowing your price range, if you want a house or a condo, what the location of your work is and what are definite deal breakers.

Personally I can’t stand downtown and a large lot was what I wanted. It really depends what floats your boat. I started my search in Toronto and ended up in Scarborough. Bad reputation notwithstanding I ended up with most of what I wanted, renovation project, large lot, double brick house so I can add a floor. I had to give up being downtown to get other things that mattered more. With the improvements I have made my house has just about doubled in value and I could add more value or space if I added a floor. It is also paid off because I got a good deal and I could rent out the basement apartment.

When you live in a place you are the only one that can decide what sacrifices you can make and what you can live with.

Thanks for your reply Rachelle I appreciate it. I am looking for a shorter commute. I am also looking to spend under 400k but I am also not oppose to a fixer upper closer to 300k.
Space and larger rooms is definately something that is important, also a shorter commute. I like dowtown but not to escape I would not mind a pocket in Toronto where I can have a short commute but see grass and trees and not have condo fees – I think they are a waster personally and someone posted a great article about the way they drink your money.

In regards to that realtor on HGTV I honestly thought she showed more than 3 propertieis but for sake of the show they narroowed it down becuase I am sure when the show started they had more but realised that there was no depth that is my observation. That being said I love HGTV and the ideas that it brings forward.

I look forward to exciting replies and please keep us up to date on any of your other thought provoking blogs.

Thanks for a great post. I’m looking forward to more insights through one of my favourite sites, MDJ.

The guest blogger description includes, “Rachelle makes a living in investment real estate…”, which prompts my request that I hope is not inappropriate. Rachelle, can you get in touch with me about your services?

In the price range you mention there are basically two locations in Toronto where you can get a house.

East of Broadview, west of Victoria Park, South of Danforth, North of the Beaches is one area.

The other area clusters around the Oakwood/Eglinton area. if you go in this direction go for south-east border.

It’s easy enough to get an idea of what is available using Realtor.ca maps function. Plug in Toronto and your requirements and expand the search using the expand button. If your looking for a house in Toronto you have to add house as your desired type of housing otherwise the search returns condos and it may return more than 500 and it won’t show up at all.

Keep in mind that Realtor.ca can be a really crappy website. Most if not all the good stuff never even makes it on there before it’s sold. I find it really upsetting that it’s not even kept up to date. I have a few decent agents I work with periodically. One of them currently sends me every multires that enters the market in the GTA so I can keep on top of things.

I left Canada back in 2003 and moved to Atlanta Georgia. I made my money in Wholesale Real Estate…Assigning discounted contract properties to Investors. I moved back here in 2006 and find myself lost and not being able to come up with the capital or able to implement the same techniques I used to be successful in Real Estate. The market is so different here and the prices are way over rated here in Ontario. The ugliest houses are going for retail which always amazes me when they sell.

My questions to you are as follows:
-Do American techniques work here in Canada?
-Can you purchase a property without money or credit?
-Can you control property here in Ontario for a Rent 2 Own without purchasing the property?
-How much capital gains taxes do you have to pay on a flip?
-Are there any ways to avoid Capital gains taxes eg. owner occupying the property for a number of months (renovate) then sell?
-Are there really any discounted properties here in Ontario 65-80% LTV
-Where are the Hard Money Lenders?
-How can you get builder sell off properties?
-Where can you find Motivated Sellers/Pre-Power of Sale Properties with equity?

I can go on…and on, but I won’t until I see if you can at the very least give me more insight to my many questions pertaining to the Canadian market.

I have bad news for you, American techniques don’t really work here at all. I get kind of irritated when I see our southern brother holding seminars here trying to hawk their cds and such when most of their techniques don’t work at all.

You cannot really buy a property without money or credit.

I have heard of people controlling an interest in a property but it’s not common at all. I imagine that sellers would have a lot of resistance to this.

If you live in the property for one year as your principal residence you don’t have to pay capital gains. In any case this is the link to all the capital gains questions.

I’m not sure what you mean by builder sell off property. Not sure it exists here either.

Motivated sellers and pre power of sale properties are also hard to come across because our laws are so different. By law power of sales go to the retail market. Our banks have the obligation to sell for as much as possible. I do see people putting corrugated plastic signs up with their number but I’m not sure how effective this is.

If you have any more questions come over the Canadian Money Forum and post in Real Estate. The tab for that can be found at the top of this page. I’d sure like to hear about it if you find out anything different. I check in there every day.

It also irritates me to see these money hungry so called Real Estate monsters here selling poor unsuspecting innocent hard working people these packages already knowing the techniques don’t work here. This is the reason I moved to the US in the first place. I tried to move US properties from here upon my return and lost credibility once found they found out I’m working from Canada.

Your absolutely correct when you say that Canadian home owners are a lot less open to handing over their properties regardless of the situation their facing. They will be quicker to have the bank take it back before handing it over to an investor.